A T4A slip is an essential Canadian tax form that businesses must issue to contractors and other self-employed individuals when payments are made for services rendered within Canada.
For Direct Selling businesses, properly issuing T4A slips and understanding withholding requirements are crucial for ensuring smooth, efficient operations and compliance with the Canada Revenue Agency (“CRA”).
When should a T4A be issued?
Subsection 200(1) of the Income Tax Regulations (“ITR”) mandates that any person making a payment described in subsection 153(1) of the Income Tax Act (“ITA”), including “fees, commissions or other amounts for services” (paragraph (g)), to a recipient—whether an individual, corporation or otherwise—must file an information return in the prescribed form (e.g., a T4A slip).
The CRA's administrative position requires that the payor must issue a T4A slip when total payments in a calendar year exceed $500, or when income taxes are withheld from these payments. A T4A summary slip must also be filed with the CRA.
When does withholding occur?
Section 105 of the ITR, in conjunction with subsection 153(1)(g) of the ITA, states that any person paying a non-resident “a fee, commission, or other amount” in respect of services rendered in Canada must withhold 15% of the payment and remit it to the CRA.
This requirement to withhold applies to any individual, corporation, or trust, or member of a partnership, whether they are resident or non-resident in Canada.
Amounts withheld under section 105 of the ITR are not considered a tax but a “withholding” for the non-resident's potential Canadian income tax obligations.
In the case of Weyerhauser Company Limited v. The Queen, the Tax Court determined that the term “in respect of” within section 105 should encompass only those amounts that are taxable in Canada in the recipient's hands. This interpretation means that payments with the “character of income” earned in Canada by the non-resident payee are subject to the withholding requirement.
What happens when the payee is a non-resident?
When payment for services is rendered to non-residents of Canada, a special type of T4A slip called a “T4A-NR” must be issued to the non-resident annually, and a T4A-NR summary slip must be filed with the CRA. The CRA generally enforces this requirement when non-resident persons are physically present in Canada while rendering services.
Withholding remittances are managed through a mandatory “payroll account” with the CRA, requiring monthly reporting and remitting.
The withheld amounts must be remitted by the 15th of the month following the payment. If no withholdings are required during certain months, “nil” reporting must still be made by the 15th of the following month (See CRA Guide RC4445).
Conversely, when payment for services is rendered to residents of Canada, no withholding or monthly reporting is required. However, annual T4A slips, along with T4A summary slips, must still be issued.
Takeaways
Navigating the complexities of filing T4A slips and withholdings can be challenging. Seek specialized legal assistance to ensure compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.